Duke Energy Corporation's (NYSE:DUK) dividend will be increasing to US$0.98 on 16th of September. This makes the dividend yield about the same as the industry average at 3.6%.
Duke Energy's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.
Earnings per share is forecast to rise by 198.2% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 76%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.
Duke Energy Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was US$2.94 in 2011, and the most recent fiscal year payment was US$3.94. This works out to be a compound annual growth rate (CAGR) of approximately 3.0% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Duke Energy's earnings per share has shrunk at 13% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Duke Energy will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Duke Energy is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 6 warning signs for Duke Energy you should be aware of, and 1 of them makes us a bit uncomfortable. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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